The Federal Reserve cut interest rates, which is a topic that has attracted the attention of investors around the world. Since the end of October, the expectation of interest rate cuts has been frantically fermented, U.S. bonds and ** have risen across the board, and the focus of Wall Street has shifted from "whether to cut" to "when to cut" and "how much", and even bet heavily that the Federal Reserve will start its first interest rate cut in March next year, and cut interest rates by 125 basis points for the whole year. Is this a carnival to rush the Fed or a trap to cut interest rates?
The reason for the Fed's rate cut: the slowdown in the economy and the decline in inflation
The main reason for the Fed's rate cut is to deal with the slowdown in U.S. economic growth and the pullback in inflation. The U.S. economy grew by 21%, down from 29% and 3 in the first quarter1%。Consumer confidence in the United States also fell by 4 percent in October1 percentage point, the lowest level this year.
Inflation in the United States is also gradually decreasing, with CPI increasing by 3 percent year-on-year in October2%, down from 37% and 4 in August0%。The Fed's goal is to maintain inflation at around 2%, but the current inflation rate has far exceeded this level, indicating that the US economy is at risk of overheating. Therefore, the Fed cuts interest rates to stimulate economic demand, reduce inflationary pressures, and maintain the smooth functioning of the economy.
Fed rate cut expectations: The market is betting on a rate cut in March next year
The Fed's expectation of a rate cut is determined by supply and demand in the market. The market has a keen sense of the Fed's policy direction and will adjust its expectations based on various economic data and Fed** remarks. At present, the market expectation of a Fed rate cut has been very strong, according to the Chicago Mercantile Exchange, the market expects the Fed to cut interest rates by 25 basis points in March next year has reached 80%, and the probability of a 125 basis point rate cut for the whole year is also as high as 50%. This indicates that the market believes that the US economy will experience a significant downturn next year, and the Fed needs to adopt a more accommodative monetary policy to support the economy.
The impact of the Fed's interest rate cuts: **Bond market, gold market is hot**
The impact of the Fed's interest rate cut is manifold, the most direct of which is the impact on financial markets. The Fed's interest rate cut means that the value of the dollar will fall, and the attractiveness of dollar-denominated assets will increase, so it will lead to a boom in the bond market and the gold market. Since the end of October, the United States has been **all the way**, with the Dow Jones Industrial Average, the Nasdaq Composite, and the S&P 500 all hitting record highs.
The U.S. bond market has also been buoyed by expectations of a rate cut, with the U.S. 10-year Treasury yield falling from 5 at the end of October5% fell to 48%。The U.S. market also fell in anticipation of a rate cut, from $1,500 per ounce at the end of October to $1,600 per ounce in mid-November. All of this suggests that the market is reacting positively to the Fed's rate cuts, believing that rate cuts are conducive to improving asset yields and safe-haven value.
Conclusion
Fed Rate Cut, Frontrunner or Trap? The Federal Reserve's interest rate cut is a topic that has attracted the attention of global investors. At present, the market's expectation of the Fed cutting interest rates has been very strong, resulting in a hot **, bond market, and gold market**. This may seem like a rush to the Fed, but it could actually be a trap for cutting interest rates.
History has shown that the rate cut trade has not been smooth sailing, and there may be greater risks after the Fed cuts. Wall Street banks are also divided on how the S&P 500 will move next year. Some believe that interest rate cuts will stimulate economic growth and corporate earnings, and promote **continue**; Some believe that interest rate cuts reflect the risk of recession and falling inflation, and indicate that the rate cut is a good sign. The Fed has paused interest rate hikes twice in a row